Eric Schoenberg

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This study offers empirical support for a recently proposed theoretical model of asset
market bubbles in which relative wealth concerns cause rational investors to choose
to participate in a finite horizon bubble. I find that laboratory asset market bubbles
are larger when participants are given upward social information, i.e., are informed of
the highest payoff in their market, as compared to downward social information. This
finding can be explained by the influence of social comparisons in the formation of
prospect theory reference frames; upward comparisons may cause participants to
construe their outcomes as losses and become more risk-seeking.